Thursday, April 1, 2004
Issue Contents:
| 10:46 | Good Morning On Deck Today |
| 11:32 | Update on QCOM Difference in tactics for Investor, Trader. |
| 14:50 | Intraday Index Update Note for swing traders of QQQ, SPY, DIA. |
| 14:59 | Dow Jones 30 DIA Swing Trader Alert |
| 16:16 | Active Trader Transcript Real time forum log. |
Well, between the car accident, international insurance claims paperwork, and getting the mess that was once the car cleaned up, the end of this disrupted week just can't come fast enough for me. Since the trader's job is to make lemonade out of lemons, we'll be uploading some interesting tidbits and review some sectors of the market that deserve attention during the day.
At the close, we'll make the transcript to the real-time service available to all subscribers, since there was some valuable information there about how to size up the upcoming day in order to anticipate price action.
Don't forget, if you wish to learn our trading techniques, they are all documented in the TrendVue Technical Trader's Handbook.
We won't follow each and every trade entry forever, but I thought we'd continue to revisit [QCOM] for a while here to illustrate useful concepts, and to highlight how traders and longer term investors will approach trade management.
As discussed in our initial QCOM idea, we set up a trade based on stalking QCOM for confirmation of a break out from a trading range.
Yesterday, QCOM triggered the long trade, and moved immediately higher.
Once triggered, both traders and investors are advised to put in what we call a "crash stop" - a stop that serves to protect capital even if things fall apart - your internet connection dies, some big and nasty world event causes a major market sell off intra-day - that sort of thing.
For the intraday or short term trader, these stops should typically be placed immediately once a trade is initiated.
The overnight / end of day trader/investor who doesn't live in front of a terminal all day has no choice but to set up stops after hours, in preparation for the next day's market activity.
Fine Tuning Stops
Also noted yesterday, QCOM is in the process of testing a top, and we are always extra careful at such times since reversal of a trend has to start somewhere. How a trade is managed depends on the time frame which the trader is working on:
The intraday trader gets long off of the intraday chart and very quickly moves to at least a break/even stop as price moves immediately in our favor. Once long, the intraday trader moves up stops in order to capture as much profit as possible during the day, with the full intention of closing out the trade before days end.
The swing trader and the investor both are looking for gains from a trade that will span more than a single day and are essentially long off of the daily chart, whether they use the intraday chart or not to fine tune an entry. Their stop is off of the low of the daily bar (cursor arrow is underneath the inside bar in this chart) which triggered the trade:
Bottom line: Intraday trader got long, took profits and is out. Swing trader/investor: got long and has a protective stop in place which has not triggered, even though the trade has been underwater for some period today (currently up a few cents).
This type of back and forth action is not unexpected at major tests of a top or bottom - we have to be prepared that not every trade will work out in our favour. However, using prudent entry techniques, and most importantly sane protective stop and exit strategies, our portfolio will win in the long run.
Final comment on QCOM intraday - you can see the line in the sand - the orange dotted horizontal line which highlights the intraday test of top - if this trade is to work out for more than just intraday scalpers, price will have to climb above this line in the next 1-3 days; experience suggests that the more quickly it does so, the better.
It seems unlikely that price will move much today, given the big economic news due out Friday morning - the jobs report - it seems most traders and investors are waiting for with grim anticipation. We won't be too surprised to see stocks and indexes tread water or even sell off some today, in advance of tomorrows news.
Given that the jobs number will likely move the market, but we can't predict in which direction, sizing our trades or new investments appropriately to the risk is as important as the entry, exit and protective stop decisions we must make.
Friday is poised to be a pivotal moment in the market due to the Jobs Report - lets look at the intraday action in the main indexes of relevance to most investors - the Nasdaq 100 (NDX) and S&P 500 (SPX). We'll use the emini futures proxies [NQ] and [ES] for both.
NQ broke out above the ascending triangle which formed yesterday. The highs of the March 29 through 31 - formerly resistance, now have proved support - at least so far in the session.
ES likewise has found support in the area of a former swing high.
DIA Swing Traders, please take note of this special update related to the index composition change.
We won't be too surprised to see the markets move sideways for the balance of the day, or even sell off some on an intraday basis. After all, unless you happen to have the Jobs Report in your possession today, in advance of its release tomorrow, guessing the number, and more importantly, the market reaction, is pretty much a crap shoot.
For swing traders that went long off our March 24 swing trade setup, the decision is this: take profits (QQQ is up almost 5% from our March 24 intraday entry) and stand aside during the confusion, or, risk some or all of those gains on a positive outcome from the Jobs number when its released early Friday morning.
The DIA presents a slightly different challenge today. Announced today, the component mix of the most visible stock index in the world is changing.
Dow Jones replaces 3 stocks in benchmark index
By Elizabeth LazarowitzNEW YORK (Reuters) - Dow Jones & Co. on Thursday dumped three of America's oldest companies from its benchmark Dow Jones industrial average, replacing them with firms it said reflected growth in the financial and health care sectors.
AT&T Corp., Eastman Kodak Co. and International Paper Co. will be replaced by American International Group Inc., Pfizer Inc., and Verizon Communications, Dow Jones said.
Shares of the three newcomers ticked higher in midday trading, while investors gave the outgoing companies a cool reception.
The shift was made to "recognize trends within the U.S. stock market, including the continued growth of the financial and health care sectors and the diminishing relative weight of basic materials stocks," Paul Steiger, managing editor of the Wall Street Journal, said in a news release.
The changes, which will become effective at the open of trading on April 8, are the first shifts in the 107-year-old stock index since 1999.
So, on an interm basis at least, we might expect the DOW 30 to perform slightly differently than the broader market as mutual funds and indexers work through the process of rebalancing their portfolios to the new mix.
Consequently it is not much of a surprise that the DJ30 is performing weaker than the NDX or SPX, and has so far failed to find support above yesterday's highs.
Real time forum log.
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